Newmont Corporation: Third-Quarter 2020 Form 10-Q Summary
Business context and reporting period
Newmont is a global gold producer with operations and investments across North America, South America, Australia and Africa, plus a 38.5% interest in Nevada Gold Mines. This unaudited Form 10-Q covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods. Comparability is affected by the 2019 Goldcorp acquisition, the formation of Nevada Gold Mines, and the 2020 sales of Kalgoorlie and Red Lake.
Key financial and operating metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Sales | $3,170 million | $2,713 million | $8,116 million | $6,773 million |
| Net income attributable to Newmont stockholders | $839 million | $2,178 million | $2,005 million | $2,240 million |
| Continuing-operations net income attributable to stockholders | $611 million | $2,226 million | $1,860 million | $2,340 million |
| Diluted EPS from continuing operations | $0.76 | $2.71 | $2.31 | $3.30 |
| Adjusted net income | $697 million | $292 million | $1,284 million | $560 million |
| Adjusted diluted EPS | $0.86 | $0.36 | $1.59 | $0.79 |
| Adjusted EBITDA | $1,663 million | $1,079 million | $3,765 million | $2,445 million |
| Operating cash flow from continuing operations | Not provided for quarter | Not provided for quarter | $3,204 million | $1,668 million |
| Free cash flow | Not provided for quarter | Not provided for quarter | $2,300 million | $635 million |
| Gold production | 1.521 million ounces | 1.650 million ounces | 4.236 million ounces | 4.599 million ounces |
| Gold all-in sustaining cost | $1,020/oz. | $987/oz. | $1,046/oz. | $974/oz. |
Q3 sales increased 17%, and nine-month sales increased 20%, primarily because of higher realized gold prices and stronger silver, lead and zinc sales. Average realized gold price was $1,913 per ounce in Q3 and $1,745 per ounce for the nine-month period, compared with $1,476 and $1,370, respectively, in 2019.
At September 30, 2020, cash and cash equivalents were $4,828 million. Available liquidity was approximately $7,756 million, consisting of cash and $2,928 million of unused revolving-credit capacity. Debt carrying value was approximately $6,030 million, compared with $6,138 million at December 31, 2019; net debt was $1,849 million. The company reported compliance with its debt covenants.
Nine-month capital expenditures were $904 million on a cash basis, including $588 million of sustaining capital and $283 million of development projects on an accrual basis. Regular dividends declared were $0.25 per share in Q3 and $0.64 per share for the first nine months. The board subsequently increased the quarterly dividend to $0.40 per share for Q4 2020.
Material changes versus the prior comparable period
- Reported continuing-operations earnings declined because the prior-year period included a $2,366 million gain on formation of Nevada Gold Mines. Excluding unusual items, adjusted net income and adjusted EBITDA improved substantially.
- Gold production declined 8% in both the quarter and nine-month period, primarily because of COVID-19-related disruptions, lower grades and the Kalgoorlie and Red Lake dispositions.
- Gold AISC increased from $987 to $1,020 per ounce in Q3 and from $974 to $1,046 per ounce for nine months, reflecting care-and-maintenance costs, lower production and operating pressures.
- COVID-19 resulted in $26 million of cash care-and-maintenance costs in Q3 and $171 million for nine months, plus $32 million and $67 million, respectively, of incremental COVID-19-specific costs.
- The company completed sales of Kalgoorlie, Red Lake and Continental Gold-related interests, recognizing aggregate nine-month gains of $593 million, including $493 million on Kalgoorlie, $91 million on Continental and $9 million on Red Lake.
- Newmont issued $1,000 million of 2.25% senior notes due 2030 and used the proceeds, together with cash, to repurchase portions of notes due in 2022 and 2023. Nine-month debt-extinguishment charges were $77 million.
- Nine-month cash flow from continuing operations increased 92%, and free cash flow increased from $635 million to $2,300 million, aided by higher gold prices, asset sales and lower capital spending.
Guidance, outlook, commentary and risks
Management stated that Musselwhite, Éléonore and Peñasquito were fully operational at September 30, 2020; Yanacocha had approached normal operations; and Cerro Negro remained at reduced levels because of travel restrictions and local coordination. Management believes liquidity is sufficient to manage the pandemic and fund operations, projects, debt obligations and shareholder returns.
The Tanami Expansion 2 project is expected to add approximately 150,000 to 200,000 ounces of annual gold production during its first five years beginning in 2023 and reduce operating costs by approximately 10%. Musselwhite Materials Handling was on track for completion in the fourth quarter of 2020. The filing does not provide a clear consolidated production or cost guidance figure for full-year 2020.
Key risks include metal-price volatility, COVID-19-related shutdowns and supply-chain disruption, labor and community matters, permitting, environmental and reclamation obligations, foreign-exchange controls, tax disputes, political and regulatory changes, and mine operating, geological and technical risks. Reclamation liabilities totaled $3,401 million and remediation liabilities totaled $285 million at September 30, 2020. Certain environmental matters could result in remediation liabilities up to 38% above the amount accrued.
Unusual items included a $218 million Q3 gain from revaluation of the Holt royalty obligation and option, an $83 million pension settlement charge, $93 million of TMAC investment impairment for nine months, and $24 million of Q3 long-lived-asset and inventory impairments. Management reported no COVID-19-related impairment indicators for long-lived assets or goodwill as of September 30, 2020.
The filing identifies potential tax and legal exposures, including Mexican tax matters, Yanacocha proceedings and tax disputes, Ghanaian litigation, environmental matters and other mining-related claims. The company generally states that outcomes cannot be predicted, although a Mexican reassessment settlement was expected to be significantly below the original reassessment.
Important facts for investors to verify
- Reconcile GAAP earnings with adjusted net income and adjusted EBITDA, particularly the impact of the 2019 Nevada Gold Mines gain and 2020 asset-sale gains.
- Assess whether COVID-19 disruptions, care-and-maintenance costs and elevated AISC persist, especially at Cerro Negro and Yanacocha.
- Verify gold-price sensitivity, production recovery and the company’s ability to sustain the $0.40 quarterly dividend and planned share repurchases.
- Review debt maturities, refinancing requirements and the availability and covenant conditions of the revolving credit facility.
- Evaluate reclamation, remediation, environmental, community and tax contingencies, including the potential range of unrecorded liabilities.
- Monitor development capital, permitting and execution risks for Tanami Expansion 2, Yanacocha Sulfides, Ahafo North and other pipeline projects.
- Confirm provisional pricing exposure: 136,000 gold ounces, 10 million pounds of copper, 3 million ounces of silver, 24 million pounds of lead and 10 million pounds of zinc remained subject to final pricing at September 30, 2020.